What is a blended rate on a mortgage and when is it used in Ontario?

A blended rate on a mortgage is a weighted average of two different interest rates. It arises most often in a blend-and-extend scenario: you have a mortgage at one rate and want to increase your borrowing or lock in a new term before your current term ends, and the lender agrees to combine the remaining existing balance at the old rate with the new amount at the current rate, producing a blended rate somewhere between the two.

Lenders use blend-and-extend as an alternative to allowing borrowers to formally break a mortgage and incur a prepayment penalty. From the lender's perspective, they retain the borrower and earn a rate that reflects their cost of keeping the existing committed funds deployed. For the borrower, the advantage is avoiding a formal penalty — though the blended rate may be higher than what you could get by breaking, paying the penalty, and signing a fresh mortgage elsewhere.

To assess whether blend-and-extend makes sense, compare the blended rate against available new mortgage rates from other lenders, factoring in what any penalty would cost. Sometimes the penalty is so small, or the competing rate so attractive, that breaking and refinancing outperforms a blend. Other times, particularly on large fixed mortgages with long terms remaining, blending is significantly cheaper. Your mortgage broker can model both scenarios using your specific numbers.